PKP Cargo's Annual Report Reveals Challenges: Increased Costs Amid Declining Shipments

PKP Cargo's long-awaited annual report has finally been published. The results show significant decreases in shipments across virtually all segments and a partial increase in costs.

Shareholders have long awaited the earnings report. The report was linked to the question of whether and in what form the current management of the company would continue. Finally, the results and the decision of the government-appointed Supervisory Board came simultaneously on 23 April.

Under the pressure of the economic downturn and the war in Ukraine, the Polish market carried 6.8% less cargo in financial terms in 2023, with a 1.4% year-on-year decrease in volume. A significant slowdown in freight traffic is evident from destinations in East Asia. As far as the segment is concerned, coal is a priority. PKP Cargo (for the whole group) transported 82.7 million tonnes of cargo, representing a year-on-year decrease in volume of 17.9 million tonnes (down 17.8% yoy), which amounted to 22.282 million tonne-kilometers.

The liquid fuels, metals, and ores segments recorded the largest volume declines of -31.8% and -30.2% respectively, while aggregates and construction materials transport remained at a similar level to last year (down 5.2% yoy). Solid fuels transport declined by 19.4% yoy in volume, with coal transport down 21.6%. Other segments did not match the company's declines. PKP CARGO Group's market share in Poland in 2023 was 33.1% (down 4.4% yoy), measured by cargo weight the share was 33.9% (down 6.0% yoy).

The report also indicates that, in general, the key players are experiencing relatively larger market declines than smaller carriers in similar situations. However, despite the economic and transport downturn, PKP CARGO closed the year with solid revenues and maintained its EBITDA level. Revenues amounted to PLN 1,323.7 million (a 16% year-on-year decrease). Despite the decline in revenues, EBITDA reached PLN 1,083.1 million, an increase of 1.6% yoy. The Group's net result amounted to PLN 82.1 million.

Operating expenses increased by 2% year-on-year. The Group's largest costs were employee benefits and depreciation and amortization, which increased by 12.7% and 8% respectively. Net finance costs amounted to PLN 181.5 million in the period under review, representing a year-on-year increase of 20.5%. At the end of the reporting period, PKP CARGO had a cash flow of PLN 263.7 million in cash and access to debt financing. Capital expenditure increased by 121.8% year-on-year.

PKP Cargo faced rising inflation, falling demand, and rising energy costs. The first months of 2024 further highlighted the negative trend in the sector, especially for the largest operators, which are losing market share in Poland. On the contrary, smaller operators recorded an increase in transported volume (+3.8% yoy).

The report states that operational flexibility and efficient process management are key to improving the company's business and financial situation this year. This potential needs to be harnessed for further growth. The management is continuously reviewing all the company's processes to improve operational efficiency and reduce costs while increasing sales potential. Maintaining the existing customer base and intensively acquiring new partners in promising segments such as intermodal transport will be important for the Group's market position. The report was presented just before the dismissal by the CEO in charge, Maciej Jankiewicz.